Energy Minister Simon Watts has issued a stark warning to New Zealand’s electricity sector, making it clear that the government expects immediate action to address energy security and affordability concerns ahead of what is predicted to be a challenging winter. In meetings with the country’s largest generator-retailers (gentailers) and gas producers, Watts stressed that if the industry fails to act, government intervention will follow.
Holding Gentailers Accountable
In a high-stakes meeting earlier this month with Genesis Energy, Mercury, Meridian, and Contact, Watts delivered an ultimatum, stressing that a repeat of last winter’s energy crunch would not be tolerated. The government is pushing for a more stable electricity market, lower wholesale power prices, and better risk management for supply shortages.
“We are playing our part to unshackle the energy sector, and now the sector must deliver,” Watts said. “Otherwise, further action will be inevitable.”
Last winter, soaring wholesale electricity prices forced multiple industries to shut down, including wood and paper mills, due to unaffordable energy costs. While household consumers were largely shielded by pre-purchased contracts, power prices are now expected to increase in double digits, driven by higher lines charges and the phase-out of fixed daily price schemes.
A key area of concern is the cost of long-term hedging contracts, which have become prohibitively expensive. Watts has made it clear that he wants to see these costs come down to relieve pressure on industrial users and independent retailers.
Government Measures to Strengthen Energy Security
In response to growing concerns, the government has unveiled a series of initiatives aimed at stabilising energy prices and ensuring reliable supply:
- Consumer Data Right for Electricity: A proposed reform to allow consumers better access to energy usage data, which is expected to enhance competition and enable better decision-making.
- Gas Security Response Group: A new task force bringing together government agencies, gas producers, and major consumers to address gas supply concerns. Gas remains a critical backup for renewable energy, especially during dry spells when hydro generation is limited.
- Electricity Market Review: A joint Electricity Authority and Commerce Commission task force has been established to assess market performance and identify regulatory improvements.
- Repeal of the Offshore Oil and Gas Ban: The government has reversed the previous administration’s ban on offshore oil and gas exploration in a bid to boost domestic energy production and attract investment.
- Dry-Year Security Measures: The government is considering lifting regulatory barriers to importing liquefied natural gas (LNG) as an emergency measure to supplement domestic supply.
Market Reforms and Winter Preparedness
In addition to these long-term measures, Watts has warned that the next 120 to 150 days will be particularly challenging as energy supply risks mount. Industry leaders have responded with efforts to maintain fuel stockpiles, including securing additional coal supplies to keep the Huntly Power Station operational.
Genesis Energy, which operates Huntly, has already stockpiled 500,000 tonnes of coal and has ordered another 500,000 tonnes to ensure sufficient backup if hydro levels remain low. CEO Malcolm Johns likened the situation to “trying to land a 747 on an aircraft carrier without a clear view out of the cockpit.”
Despite these efforts, Watts has made it clear that more needs to be done. “I remain concerned around winter ’25, obviously, off the back of the experience of winter ’24, and it is my focus to ensure that all participants within the energy market in New Zealand are doing everything that they can to ensure that we’ve got energy security and affordability,” he said.
Regulatory Changes and Future Market Structure
The government is also advancing policy changes that could reshape the electricity market in the long term. One key proposal is to allow lines companies to own certain generation assets, a move that could increase local energy production and grid reliability. Additionally, the Fast-track Approvals Act 2024 is expected to accelerate the approval process for new energy projects, removing bureaucratic hurdles that have slowed development.
Another major reform under consideration is the separation of gentailers’ retail and generation arms, an idea strongly backed by Associate Energy Minister Shane Jones. This move, which could enhance competition and lower prices, is likely to face industry resistance.
A Balancing Act Between Immediate Risks and Long-Term Strategy
Watts has made it clear that while immediate risks must be managed, the long-term goal is to foster a more competitive and resilient electricity market. The Frontier Economics review, due in June 2025, will play a key role in shaping government policy and determining whether further regulatory action is necessary.
In the meantime, the minister has warned that no option is off the table. We need to leave “no stone unturned to ensure we’ve got energy security and affordable energy prices for New Zealanders,” he said.